Modern Portfolio Theory has failed investors. A change in direction is long overdue.Â
We are in a time of enormous risk. Economic growth is anemic, and political risk to the capital markets is on the rise. In the U.S., a generation of white collar baby-boomers is heading into retirement with insufficient assets in their 401(k) programs, and industrial workers are stuck with materially underfunded pension plans. Â
Against that backdrop, the investing industry’s current set of practices and assumptions―Modern Portfolio Theory (MPT)―is based on a half-century old formula that is supposed to deliver the maximum amount of return for a given amount of risk. The trouble is that it doesn’t work very well.Â
In Getting Back to Business, dividend-investing guru Daniel Peris proposes a radical new approach―radical in that it does away with MPT in favor of a more intuitive, common-sense approach practiced by business people in their own affairs everyday: cash returns on cash investments.Â
“In a profession utterly lacking a historical sensibility,†Peris writes. “One periodically needs to ask why we do things the way we do, how we got here, and whether perhaps there is a better way.†Balancing detailed historical evidence with a practitioner’s real-world expertise, Peris asks the right questions―and provides a solution that makes sense in today’s challenging investing landscape.
